ULTA Salon, Cosmetics & Fragrance (ULTA) is one of those compelling companies that comes out of nowhere to dominate an industry and disrupt the status quo.
It’s the new beauty salon. What was once the provenance of department stores has now become its own focused market segment.
ULTA provides shoppers with a cosmetics and fragrance superstore that also features salons in each store. It’s a one-stop shop for beauty.
The company has been around for 25 years, but it only went public in 2007 — certainly not an auspicious year to launch, on the eve of the Great Recession.
But in the case of ULTA, it worked out very well.
ULTA Worked With Changing Trends
The financial crisis forced a rethinking of how all industries operated, including the shift from traditional department stores to online retailing and niche specialty stores.
People who were going to brick-and-mortar stores were not buying what they used to. Much of what they wanted at a store, they were happy buying online.
But beauty products were not among the sectors that migrated online. They remained something consumers want to shop for in person — and ULTA was there to provide the opportunity to do it on a massive scale.
Each store now runs about 10,000 square feet – at 817 stores.
ULTA offers 20,000 products from over 500 manufacturers, plus hair, skin and brow salon services.
The most compelling aspect of ULTA, however, is how fast it continues to grow given its already substantial size.
It’s one thing when a small company is able to increase sales and revenue in high double, even triple, digits. But going from $4 million to $8 million in sales is much different than going from $3 billion to $6 billion.
Strong and Growing Numbers
In late August, ULTA released its Q2 numbers, and they look like the numbers for a company half its size in an economy that is firing on all cylinders.
Net sales were up almost 20%, from Q2 a year ago — $877 million vs. $734 million. Comparable sales — a very important number in retailing — were up a stunning 10%. Retail sales were up 9% and salon sales were up 10%.
And here’s the big one: E-commerce sales were up 43%. This is certainly from a smaller base than its retail sales, but what it proves is there is a huge potential online market that ULTA is now beginning to tap into.
That spells significantly more organic growth in store (pardon the pun) as well as online for ULTA.
What’s more, Amazon (AMZN) has recently announced that it is going to renew its efforts in growing its Prime membership by increasing its depth and breadth of retail offerings, including the beauty and cosmetics space.
Given the power that ULTA is now exhibiting, it’s likely ULTA and AMZN may likely join forces instead of going to war against each other. That would be another major boost to ULTA’s dominance in the space.
The stock is up 32% year to date, but it’s trading at a relatively reasonable 38 PE.
It’s not wildly expensive, and give the growth potential, it could see some big gains moving into Q4.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
